Benchmarks end marginally lower as Budget fails to cheer investors

Indian equity benchmarks made a smart recovery from the day's lows and ended marginally lower as investors digested the announcements from the Union Budget 2024. After making slightly positive start, key gauges slipped into red as traders got cautious with the Global Trade Research Initiative (GTRI) stating that increasing foreign direct investment (FDI) from China in the domestic market may benefit in the short-term but it risks undermining India's long-term economic security and strategic autonomy. It said dependence on Chinese firms for key manufacturing capabilities could also expose India to supply chain vulnerabilities and geopolitical risks. After that, key gauges witnessed some buying but failed to hold gains and experienced a significant drop in afternoon deals on higher capital gains tax in the Union budget proposed by the Finance Minister, Nirmala Sitharaman. The government has announced raising of long-term capital gains tax (LTCG) on equity to 12.5 per cent from 10 per cent at present while raising short term capital gains tax to 20 per cent from 15 per cent earlier. It declared increasing the Securities Transaction Tax (STT) rate on Futures and Options (F&O) from 0.01 percent to 0.02 percent. It also increased the tax exemption limit for LTCG to Rs 1.25 lakh from Rs 1 lakh earlier. Besides, it has kept India’s FY25 capex outlay unchanged at Rs 11.11 lakh crore - the same as was earmarked in February.  

However, markets showed a robust recovery in the last hours of session despite more than 1 per cent fall during the budget speech, as the government's focus on lower fiscal deficit, increased spend on infrastructure and focus on rural spending helped calm the nerves of the traders. Traders also found some solace with Chief Economic Advisor (CEA) V Anantha Nageswaran’s statement that private sector investment has been improving after Covid-19 and it is expected to further pick up in the coming months. He also said there was a small slump during the Covid times, however, there is a possibility that they can invest more in machinery and equipment and also in intellectual property products.  Some support also came with a private report stating that private equity funds and venture capital funds investments have risen 8 per cent year-on-year to $31.5 billion in the first half of 2024. As per the report, the amount of funds invested is 30 per cent higher than the July-December 2023 period. 

On the flip side, European markets were trading higher as investors assessed the developments in the U.S. political front, and awaited fresh economic data, and quarterly earnings updates. Asian markets ended mixed on Tuesday with mainland China and Hong Kong markets retreating after China's third plenum communique failed to address key economic issues. Investors also awaited U.S. GDP and inflation readings this week for additional clues on the rate trajectory. Back home, on the sectoral front, stocks related to FMCG sector were in focus after Finance Minister Nirmala Sitharaman announced that changes in new tax regime -- Standard deduction proposed to increased to Rs 75,000 from Rs 50,000. Shares of agriculture-related companies were in limelight after Finance Minister Nirmala Sitharaman approved Rs 1.52 lakh crore for agri and allied sectors. 

Finally, the BSE Sensex fell 73.04 points or 0.09% to 80,429.04, and the CNX Nifty was down by 30.20 points or 0.12% points to 24,479.05. 

The BSE Sensex touched high and low of 80,766.41 and 79,224.32 respectively. There were 13 stocks advancing against 17 stocks declining on the index.

The broader indices ended in red; the BSE Mid cap index fell 0.74%, while Small cap index was down by 0.18%.

The top gaining sectoral indices on the BSE were FMCG up by 2.48%, Consumer Durables up by 2.45%, IT up by 0.82%, Healthcare up by 0.59% and TECK up by 0.56%, while Realty down by 2.15%, Capital Goods down by 2.03%, PSU down by 1.76%, Industrials down by 1.48% and Oil & Gas down by 1.32% were the top losing indices on BSE.

The top gainers on the Sensex were Titan Company up by 6.63%, ITC up by 5.52%, Adani Ports &SEZ up by 2.83%, NTPC up by 2.36% and Infosys up by 1.46%. On the flip side, Larsen & Toubro down by 3.10%, Bajaj Finance down by 2.18%, SBI down by 1.65%, Axis Bank down by 1.62% and HDFC Bank down by 1.39% were the top losers.

Meanwhile, the Global Trade Research Initiative (GTRI) has said that increasing foreign direct investment (FDI) from China in the domestic market may benefit in the short-term but it risks undermining India's long-term economic security and strategic autonomy. It said dependence on Chinese firms for key manufacturing capabilities could also expose India to supply chain vulnerabilities and geopolitical risks.  

GTRI has said that Chinese firms investing in India may prioritise their own supply chain efficiencies, potentially sidelining local industries and reducing opportunities for home-grown companies to thrive. Additionally, it said there is a risk that the employment generated might not meet expectations if Chinese firms bring in their own managerial and technical staff, limiting the benefits to the local workforce. It said it is crucial for India to develop policies that genuinely support local industry and create meaningful employment opportunities for its population.

It further said while Chinese companies investing in India and exporting to Western markets might seem beneficial in the short term, it risks undermining India's long-term economic security and strategic autonomy. It also said that China is already the largest import supplier for India in each of the eight industrial product categories. Allowing Chinese firms to 'Make in India' risks overwhelming domestic industries, potentially leading to the closure of many Indian businesses and this could transform India from a manufacturing hub into merely a trading nation, dependent on Chinese firms for critical supplies and economic growth.

The CNX Nifty traded in a range of 24,582.55 and 24,074.20. There were 20 stocks advancing against 29 stocks declining, while 1 stock remained unchanged on the index.

The top gainers on Nifty were Titan Company up by 6.56%, ITC up by 6.52%, Tata Consumer Product up by 4.42%, NTPC up by 2.78% and Adani Ports &SEZ up by 2.77%. On the flip side, Larsen & Toubro down by 3.00%, Hindalco down by 2.97%, Shriram Finance down by 2.79%, Bajaj Finance down by 2.27% and ONGC down by 1.84% were the top losers.

European markets were trading higher; UK’s FTSE 100 increased 26.15 points or 0.32% to 8,224.93, France’s CAC rose 33.89 points or 0.44% to 7,655.91 and Germany’s DAX gained 214 points or 1.16% to 18,621.07.

Asian markets ended mixed on Tuesday after a rally on Wall Street shares overnight and ahead of US GDP and inflation readings this week for further cues on the interest rate trajectory. Meanwhile, market sentiments were stabilized as semiconductor shares rebounded ahead of big earnings from US technology firms, with Tesla and Google set to report their financial results later in the day. Seoul shares gained led by tech and auto shares. Chinese and Hong Kong shares declined after China's third plenum communique failed to address key economic issues, while a surprise rate cut by China's central bank put the spotlight on the country's economic weakness. Japanese markets ended flat, while the Japanese yen strengthened ahead of the Bank of Japan's policy meeting next week, with no change in interest rates expected.